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Mukesh Steels Ltd. (MUKESHSTEELS) - Director Report

Company director report

MUKESH STEELS LIMITED
ANNUAL REPORT 2009-2010
DIRECTOR'S REPORT
Dear Members,
The Directors have pleasure in presenting the 29th Annual Report on the
Business and Operations of your Company together with the audited accounts
for the year ended 31st March, 2010.
The Financial Highlights
The financial performance of your company for the year ended 31st March,
2010 is summarized as below:
(Rs. In Lakhs)
Particulars 2009-2010 2008-2009
Sales 5249.19 7112.98
Other Revenues 83.00 35.53
Total Revenues 5332.19 7148.51
Profit before Depreciation and Tax 60.33 50.83
Less: Provision for Depreciation 14.53 14.48
Less: Provision for Current Tax 12.76 15.06
Deferred Tax 0.27 0.80
Deferred Tax Adjustments - -
Fringe Benefit Tax - 0.69
Income Tax For Earlier Years - -
Profit (Loss) after Tax 32.77 19.80
Add Balance B/F from Previous Year 376.33 356.53
Balance earned to Balance Sheet 409.10 376.33
Results of Operations:
During the year under review, your company recorded total revenues of
Rs.5332.19 Lacs comprising of other revenues of Rs. 83.00 Lacs as compared
to Rs.7148.51 Lacs in the previous financial year. The profits after tax
for the year under review increased to Rs.32.77 Lacs as against Rs. 19.80
Lacs in the previous year registering a growth of 65.51%.
Performance Review:
The detailed analysis of the operating performance of the Company for the
year, the state of affairs and the key changes in the operating environment
has been included in the 'Management Discussion and Analysis Section' which
forms a part of the Annual Report.
Dividend:
Keeping in view overall performance and future expansion in order to meet
competition, your directors have decided not to recommend any dividend for
the year under review.
Directorate:
In accordance with the provisions of Article 41(iii) of the Articles of
Association of the company, Shri Naresh Batra and Shri. Ashok Kumar Gupta,
Directors shall retire by rotation at the ensuing Annual General Meeting of
your company and, being eligible, offer themselves for re-election.
Director's Responsibility Statement:
As required under Section 217(2AA) of the Companies Act, 1956 your
Directors confirm that:
a) In the preparation of the annual accounts, the applicable accounting
standards had been followed along with proper explanation relating to
material departures;
b) The Directors had selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
company at the end of the financial year 2009-10 and of the profit of the
company for that period;
c) The Directors had taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the company and for
preventing and detecting fraud and other irregularities; and
d) The Directors had prepared the Annual Accounts on a going concern basis.
No Default
The Company has not defaulted in payment of interest and/or repayment of
loans to any of the financial institutions and/or banks during the year
under review.
Auditors
The Statutory Auditors M/s S.C. Vasudeva & Co., Chartered Accountants,
retire at the conclusion of the forthcoming Annual General Meeting and
eligible for re-appointment. They have furnished a certificate, to the
effect that their re-appointment, if made, will be in accordance with the
provisions of Section 224 (1B) of the Companies Act, 1956.
Auditor's Report
The Auditor's Report on the Accounts of the Company for the financial year
ended 31st March, 2010 is enclosed as annexure thereto
Regarding Charging of Depreciation on Plant and Machinery of Furnace Plant
as Continuous Process Plant, the Company has charged the depreciation as
Continuous process Plant because if the division is shut down then it
results into significant energy loss and also Company has to incur
significant cost for starting the production. Hence, as per Schedule XIV of
the Companies Act, the Company can charge depreciation on such assets as
Continuous Process Plant.
Regarding purchase of finished goods from a firm in which directors are
interested, the company has purchase the goods at the prevailing market
rate.
Listing
The securities of the company are listed at Ludhiana, Delhi, Bombay and
Vadodara Stock Exchange. The company has complied with all the relevant
listing requirements.
Employees Particulars
During the year under review, no person employed by the Company received a
remuneration of more than Rs.200000/- per month or Rs.2400000/- per annum,
pursuant to the provisions of section 217(2A) of the Companies Act, 1956
read with the Companies (Particulars of Employees) Rules, 1975.
Conservation of Energy, Technology Absorption, Foreign Exchange Earnings
and Outgo
A statement giving details of conservation of energy, technology
absorption, foreign exchange earnings and outgo, in accordance with Section
217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure
of Particulars in the Report of Board of Directors) Rules, 1988, is given
as Annexure hereto and forms part of this report.
Corporate Governance
Certificate received from the Auditors of the Company regarding compliance
of Corporate Governance guidelines of SEBI as required under Listing
Agreement is enclosed as Annexure hereto forming part of this report.
Industrial Relations
Industrial relations continued to remain cordial throughout the year and
the Directors express their appreciation towards the workmen for their co-
operation and hope for continued cordial relations in the years to come.
Acknowledgement
The Directors are grateful and pleased to place on record their
appreciation for the excellent support and cooperation extended by the
valuable Shareholders, Bankers, Statutory Auditors, Financial Institutions,
Customers, Dealers, Vendors and Society at large. We wish to place on
record our appreciation for the untiring efforts and contributions made by
the Employees at all the levels to ensure that the company continues to
grow and excel and looks forward for their continued support in future too.
For And On Behalf of the Board
Place: LUDHIANA Krishan Chand Gupta
DATE : 03.09 2010 Chairman
ANNEXURE TO THE DIRECTOR'S REPORT
Particulars as required under Companies (Disclosure of particulars in the
Report of Board of Directors) Rule, 1988 and forming part of the Directors'
Report for the year ended 31st March, 2010.
A) CONSERVATION OF ENERGY
Power & Fuel Consumption: (Rs.in Lacs)
S.NO. ELECTRICITY 2009-2010 2008-2009
a) Purchased Units 16537990.00 19740946.00
Total Amount (in Rs.) 91431423.00 84276475.00
Rate/Unit (in Rs.) 5.33 4.27
b) Consumption
Units/MT 817.26 934.38
Amount/MT (in Rs.) 4519.44 3988.96
FUEL CONSUMPTION 2009-2010 2008-2009
a) Furnace Oil (MT) 264.400 294.970
Total Amount (in Rs.) 6135643.20 7135618.24
Rate/MT(inRs.) 23205.912 24190.99
b) Consumption
Consumed Units 273.085 308.060
Furnace Oil/MT 0.03307 0.03859
Amount/MT (in Rs.) 767.42 933.53
B) TECHNOLOGY ABSORPTION
Particulars with respect to technology absorption are given below:
a) Research & Development NIL NIL
b) Technology absorption, NIL NIL
Adaptation and innovation
C) FOREIGN EXCHANGE EARNINGS & OUTGO
a) Foreign Exchange Earnings NIL NIL
b) Foreign Exchange Outgo (Rs. in Lacs)
PARTICULARS 2009-2010 2008-2009
CIF Value of Imports 1428.68 1516.67
Foreign Travelling Expenses 0.45 -
Others - -
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Business Overview:
Mukesh Steels Limited, the flagship company of Mukesh Group of Industries,
is in the business of manufacture of steel ingots, flats and re-rolled
products, i.e. Mild Steel & Carbon Steel Rounds which are broadly
categorized as Long Products in the Steel Industry. The main application of
products manufactured by us is in the bicycle, auto parts, scaffolding,
forging and hand tool industries. We also sell ingots manufactured in our
furnace division to various industries including other rolling mills.
Economic Overview
Having fallen into the most severe recession since World War Two, the world
economy is on the way to recovery. Following a contraction of 2.0 per cent
in 2009, world gross product (WGP) is expected to grow by 3.0 per cent in
2010 and 3.1 per cent in 2011. The pace of the recovery remains subdued,
however. The baseline forecast assumes that the multi-year policy stimulus
measures put in place in the major economies will be implemented as
envisaged, implying that in most countries government stimulus will
continue at least during 2010, and that private sector confidence will pick
up gradually. Buttressed by unprecedented government support worldwide,
global financial markets have progressively stabilized. Capital inflows are
gradually returning to many developing economies, and prices of primary
commodities have rebounded after steep declines from the start of the
crisis to the second quarter of 2009. The recovery in the real economy has
also gained more traction. Propelled by fiscal stimulus packages and
expansionary monetary policies, most economies registered positive growth
in late 2009 and early 2010.
While developing Asia, particularly China and India, is leading the way
among developing countries, the recovery is much more subdued in many
economies in Africa and Latin America. Following the severe downturn in
late 2008 and early 2009, East Asia's economies have rebounded strongly
over the past year and the outlook for 2010 and 2011 is favourable as
industrial production and exports continue to expand while improved labour
market conditions will support household demand. Led by strong growth in
China, regional GDP is expected to increase by 7.3 per cent in 2010, up
from 4.7 per cent in 2009.China will again be the region's fastest-growing
economy in 2010 and 2011 with GDP estimated to rise by 9.2 per cent and 8.8
per cent, respectively. Growth has picked up in India and Sri Lanka, but
economic conditions have remained relatively weak in the Islamic Republic
of Iran and Pakistan. GDP growth declined to 5.1 per cent in 2009 from 6.5
per cent in 2008. Average growth is expected to accelerate to 6.5 per cent
in 2010 and 6.9 per cent in 2011 as exports continue to recover and
domestic conditions improve in most countries. The recovery is led by
India, where growth accelerated to 7 per cent in the second half of 2009
due to a rapid expansion in manufacturing and in services. A recovery of
exports and a further strengthening of investment and consumption demand
are expected to lift growth in India to 7.9 per cent in 2010 and 8.1
percent in 2011.
Steel Industry
Global Overview
Steel being at the core of economic progress witnessed an unprecedented
downturn in 2009. Advanced economies buckled under pressure of large
inventories coupled with stand still demand; the rest of the world
(excluding China and India) .suffocated under low domestic demand; their
high degree of export dependency on the advanced world added to their woes.
This reconfirmed the concept of increasing global integration and global
trade coupling (except China and India).
Crude Steel Production
World crude steel production declined 8% from 1,329 million tonnes in 2008
to 1,223 million tonnes for the year of 2009. Steel production declined in
nearly all the major steel producing countries and regions including the
EU, North America, South America and the CIS in 2009. However, Asia, in
particular China and India, and the Middle East showed positive growth in
2009. Asia produced 799 million tonnes of crude steel in 2009, an increase
of 3.6% compared to 2008; its share of world steel production increased to
65% in 2009 from 58% in 2008.
Production (Mn tonnes)
Year North South EU-27 CIS Asia China
America America (except China)
2008 1245 47.4 198.0 114.3 270.1 500.3
2009 82.5 37.8 138.9 97.5 231.2 567.8
Variance (33.7) (20.1) (29.8) (14.7) (14.4) 13.5
(%)
(Source: world steel)
Steel Consumption:
The global economic and financial crisis impacted steel consumption. The
consumption declined 6.7% from 1,202 mn tonnes in 2008 to 1,121 mn tonnes
in 2009. Of the consumption, 50% was flats (largely consumption led demand)
and 50% was long products (largely infrastructure driven demand). World
consumption of finished steel excluding BRIG countries registered a decline
of 26.8% in 2009. Steel consumption of BRIC countries grew 18% largely due
to the massive consumption of steel from China to satiate stimulated
domestic demand.
Consumption (Mn tonnes)
Year North Central & EU-27 CIS Asia China
America South (except China)
America
2008 129.2 44.3 182.70 49.8 258.90 434.60
2009 80.9 33.6 118.4 35.8 213.1 542.4
Variance (37.4) (24.1) (35.2) (28.2) (17.7) 24.8
(%)
(Source: world steel)
Indian Overview Indian Steel Industry:
Indian steel industry stood out in the global steel industry due to its
resilience during the downturn. While the steel production in the world
dipped by 8% in 2009, it registered a growth of around 4% in this period.
This clearly demonstrates India's strong domestic consumption story. Even
though the real estate and housing sector showed marked decline during this
period, the same was compensated by sustained growth in sectors like
infrastructure, manufacturing and automobile. Government intervention in
the form of fiscal stimulus helped to propel growth in the end user
industry. India is the 5th Largest producer of steel in the world and it
was expected that it will become 2nd largest by 2015 on the back of the
capacity addition. India is also the world's largest producer of DRI with
around 21 Mn tonnes of production during 2009-10. India's per capita steel
consumption is 48 kg in FY. 2009-10 compared to the world average of 190
kg. Within the country the semi-urban and rural sector has significant
growth opportunities due to its low per capita consumption as compared to
urban area.
India's Steel Equation (mn tonnes)
Particulars 2006-07 2007-08 2008-09 2009-10
Production 52.5 55.2 57.2 59.5
Imports 4.9 6.9 5.8 7.2
Import Pep. (%) 10.5% 13.5% 11.2% 12.7%
Consumption 46.7 51.5 52.3 56.3
Exports 5.2 5.0 4.4 3.2
Export Pep. (%) 10.0% 9.0% 7.8% 5.3%
(Source: JPC)
The growth in demand for steel has outpaced the growth in production,
leading to increased import dependency The CAGR for production during the
given period is 6.5% and CAGR for consumption is
9.1%. Slow pace in creation of incremental capacities and rising demand
made the country a net importer of steel. The net import of steel stood at
4.0 million tonnes that grew at a CAGR of 26% from 2004-05 to 2009-10, and
export registered a declining trend of 8% from 2004-05 to 2009-10.
Financial analysis with respect to operational performance of Mukesh Steels
Limited
Revenues
During the year ended March 31st, 2010 the sales of your company has
decreased by 27.75% to Rs. 5587.35 Lakhs as against 7733.39 Lakhs on March
31st, 2009.The decrease in the total revenues of your company is on account
of decrease in sales consideration due to recession in the market.
Expenditure
Raw Material Cost:
Raw materials represent the largest component of total expenditure,
decreasing by 33.05% percent to Rs.3851.89 Lakhs in absolute terms in FY
2009-10 as against Rs.5752.60 Lakhs in FY 2008-09.The decrease in raw
material cost is predominantly due to the increase In prices of raw
material during the financial year 2009-10.
Manufacturing Expenditure:
The manufacturing expense has increased to Rs.1214.16 Lakhs in FY 2009-2010
from Rs. 108473 Lakhs in FY 2008-2009.
Manpower Cost:
The employee's cost has increased from Rs. 43.15 Lakhs in FY 2008-09 to
49.07 Lakhs in FY 2009-2010
Administrative Cost:
Administrative Expenses for the year has decreased from Rs 81.25 Lakhs in
FY 2008-2009 to Rs.45.00 Lakhs for the year ended 31s1 March, 2010.
Decrease in administrative expenses is mainly due to decrease in amount
paid for building repairs, fines and penalties, insurance charges etc.
Selling & Distribution Expenses:
Selling expenses for the year has decreased from Rs. 8.73 Lakhs for year
ended 31st March 2009 to Rs 3.56 lakhs for the year ended 31st March 2010.
The decrease in selling expenses is mainly due to decrease in rebate and
discounts and brokerage.
Depreciation:
Depreciation for year ended 31st March, 2010 is at Rs 14.53 Lakhs against
Rs 14.48 Lakhs for the year ended 31st March, 2009. The Increase in
Depreciation is towards addition in assets of the company i.e land and
building.
Interest Charges:
Interest Expense on working capital has decreased to Rs.77.48 Lakhs for the
year ended 31st March, 2010 as compared to Rs.78.34 Lakhs for year ended
31st March, 2009 due to less utilization of working capital limits during
the year.
Income Tax:
Income Tax provision for the year ended 31st March, 2010 was at Rs 13.03
Lakhs as against tax provision of Rs.16 55 Lakhs for financial year ended
31st March 2009. Decrease in tax liability is on account of decrease in
Fringe Benefit Tax.
Profits & Profitability:
PAT for the year ended 31st March, 2010 was at Rs 32.77 Lakhs as against Rs
19.80 Lakhs for financial year ended 31st March, 2009. Increase in
profitability is on account of decreased expenditure.
Balance Sheet Review:
The Company's balance sheet size increased to Rs 1729.63 Lakhs, as compared
with Rs 1219.41 Lakhs during the preceding fiscal year owing to an increase
in inventories and sundry debtors.
Share Capital:
The Company's total paid-up share capital increased to Rs 6,97,29,660.00
during the FY 2009-10 from Rs.6,96,80,160.00. The increase in paid up
capital of the company is on account of amount received against unpaid
calls. Each equity share of the Company possessed a paid-up value of Rs.
10/-.
Reserves & Surplus:
The profit after tax during the year was Rs. 32.77 Lakhs; the entire profit
was ploughed back into the business. The Company's reserves stood at Rs
465.55 Lakhs as on March 31, 2010 against Rs. 432.77 Lakhs in the preceding
year.
Secured & Unsecured Loans:
The Company's total borrowings increased from Rs 56.56 Lakhs in FY 2008-9
to Rs 533.24 Lakhs in FY 2009-10. There being no unsecured loans during the
year, secured loans only formed a part of the total borrowings.
Internal Control Systems:
The Company has in place adequate internal control systems and procedures
commensurate with the size and nature of its business. The objective of the
internal control system is to bring a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management, control and
governance processes. The effectiveness of the internal controls is
continuously monitored by the Corporate Audit Division of the Company,
Safety and Environment Risk:
In the developed world, industries have been facing rising environmental
costs due to the increased concerns on Global Warming. It is, therefore, a
challenge and responsibility for the Steel industry to be the trustee in
conservation of nature for future generations. We have developed Safety
programme to ensure Safety of our employees.
Human Resource Management and Industrial Relations:
Industrial relations remain cordial all over the year. The Company is
providing continuous training to its employees for better utilization of
its human resources.
Cautionary Statement:
Statements in the Management Discussion and Analysis describing the
Company's objectives, projections, estimates, expectations may be 'forward-
looking statements' within the meaning of applicable securities laws and
regulations. Actual results could differ materially from those expressed or
implied. Important factors that could make a difference to the Company's
operations include economic conditions affecting demand/supply and price
conditions in the domestic and overseas markets in which the Company
operates, changes in the Government regulations, tax laws and other
statutes and incidental factors. Market data and product information
contained in this report is gathered from published and unpublished reports
and their accuracy cannot be assured.